September 18, 2021

Official recognition of bitcoin as a means of payment

Official recognition of bitcoin as a means of payment

On June 9, El Salvador's parliament passed a law that formalized bitcoin as a legal tender. In the near future, the document will be signed by the President of the country Nayyib Bukele. The El Salvadorian authorities will have 90 days after the law enters into force to create the appropriate infrastructure.

Acceptance of bitcoins for payment will become mandatory in the country. The cryptocurrency will be legal tender along with the US dollar, the head of El Salvador said.

After assigning the status of a means of payment to bitcoin in El Salvador, the main cryptocurrency grew by 8%, to $ 37,000, and its capitalization increased to $ 690, according to CoinGecko, RBC Crypto reports.

Motives of El Salvador

El Salvador himself has no weight forthe crypto market, the country does not even have its own national currency (settlements are carried out in dollars), noted the head of the analytical department of AMarkets Artem Deev. In his opinion, the country has decided to accept bitcoin as a means of payment, as it will help migrants transfer money to their families in El Salvador.

"The entire economy of this country is 70% dependent on such monetary subsidies from migrants who have left to work in other countries."- added the analyst.

Therefore, the decision of the authorities globally for the crypto marketEl Salvador does not matter, Artem Deev believes. Much more important, he said, are the statements of the authorities of those countries that intend to fight against digital assets or strictly regulate them. The expert recalled the statement by former US President Donald Trump, who called bitcoin a fraud, and also called on the American authorities to "very tightly" regulate the circulation of digital assets in the country.

Who is next?

However, the adoption of Bitcoin asmeans of payment in El Salvador is a historic milestone, which marks the recognition of bitcoin as a tool for transferring value from not just retail or institutional users, but national regulators, said Nikita Soshnikov, director of the Alfacash cryptocurrency exchange service. In his opinion, other countries may follow the example of El Salvador, which are distinguished by high dependence on emigrant remittances, hyperinflation of the national currency, economic instability or sanctions restrictions imposed by the United States and Europe.

Other countries in the poorest category can goto such a step, but for digital assets it also has very little value, since most of the investors and traders are concentrated in the USA, developed EU countries and Asian countries, added Artem Deev.

Two days before Bitcoin is accepted as a means of paymentin El Salvador, Panamanian Congressman Gabriel Silva also announced the need for such a step. He called on the Panamanian authorities to support the cryptocurrency so that the country can become a hub for technology and entrepreneurship. Silva said Panama's National Assembly is already working on a bill.

A similar statement was made by the Paraguayan Congressman Carlitos Reiala. He hinted that Paraguay's support for the cryptocurrency at the state level will soon be announced.

Implications for investors?

A message appeared on Reddit stating that the adoptionBitcoin as a legal tender in El Salvador could negatively affect coin holders in the area of ​​taxation, as the IRS will now be able to treat Bitcoin as a foreign currency.

Former IRS Senior Advisor Roger Brownargues that if this happens, then any gains from trading or investments will be "normal" tax in nature, writes Decrypt. Cryptocurrencies now have a lower capital gains interest rate for assets held for more than a year.

In March 2014, the IRS issued a Notice ofthat cryptocurrency is property and not a currency for U.S. federal income tax purposes. According to Brown, this position was explained, among other things, by the fact that digital currencies are not legal tender in any country in the world, and after the decision of the El Salvadorian authorities, there are prerequisites for the IRS to designate them as a currency.

Brown himself, however, does not believe that the IRSthe US government will make any changes to the tax rules for bitcoin just because the coin has been recognized as legal tender in El Salvador. Despite the importance of this decision, El Salvador is not at the level of the European Union or any other major economy, Brown explained. At the same time, he did not rule out that in the future the IRS may revise the tax rules for the main cryptocurrency, if other countries start using that as a means of payment.

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Official recognition of bitcoin as a means of payment